Today's housing market is fiercely competitive, and bidding wars on for-sale properties are not uncommon. If you want your offer accepted, there are a few steps you can take to put the odds in your favor.
What to know before you enter a bidding war
Bidding wars typically occur in a seller's market, when there are more people looking to buy homes than there are homes for sale. When multiple buyers have made legitimate offers for the same home, the seller can choose which one they want to accept. As a buyer in a seller's market, it's important to have the information, resources and the right team of professionals to ensure you find the right home for you.
- Do you know how much you can afford?
- Do you know what your needs, wants and dealbreakers are?
- Is now the right time to buy a home?
A homebuying checklist like this one can help you answer these questions and prepare for the homebuying process.
3 Strategies to win a bidding war
Some strategies are more challenging than others, but all are worth considering. These next few steps could give you an advantage over other potential buyers.
- Get pre-approved
By having a pre-approval letter from your lender, you're telling the seller that you're a serious buyer, and you've been pre-approved for a mortgage by your lender for a specific dollar amount. In a true bidding war, your offer will likely get dropped if you don't already have one.
- Get emotional
Break out your pen and write an emotional "Dear Seller, Pick Me" letter. This strategy has proven to be effective, increasing your odds in some markets by more than 50%. Emotions play a big role in "home sweet home" and your letter puts a live person, and a serious buyer, behind the transaction. Be sure to:
- Tell the seller who you are
- Explain your motivation (why you are looking for a home to buy)
- Compliment the things you love about the home
- Avoid any details of your plans to change the home
- Get cash
In real estate, cash is undoubtedly king, and an all-cash offer can more than double your chance of getting the home. This is because all-cash offers are far more streamlined with fewer possibilities of falling through. However, this tactic is unrealistic for most families, so #1 and #2 are likely your best options.
Should you remove contingencies to win a bidding war?
Contingencies are in place to protect you as the buyer, so that if an issue arises during the transaction, you can back out and get your good faith deposit back. Removing contingencies may give you an edge over other potential buyers but may not be in your best interest in the long run.
There are several common contingencies in real estate, including appraisal contingency, inspection contingency, and home sale contingency. For sellers, contingencies may add more time and risk of losing other offers or a buyer backing out. An offer with contingencies may not be appealing to a seller if there are noncontingent bids on the table.
Before you drop your contingencies, consider the risks involved with each one, and don't take the decision lightly.
Because every local market and seller's situation is different, rely on your real estate agent's professional advice. Read also: 5 Rules for Making an Offer on a Home.
Also, be sure to visit My Home by Freddie Mac® to learn more about the homebuying process.